Wednesday, February 25, 2009

Why journalists should learn economics

Speculating that Wall Street will never have the same cache, or will take at least 50 years to regain it, is reactionary journalism to the extreme.

Banking is a job where:

a) very few people are good at itb) demand for services fluctuates wildly with the economyc) in good economic circumstances, people who are good at it can make their firms a killing

Therefore, conditions of bailouts aside, the entirety of finance is structured to guarantee long term high salaries if the economy is going to go up again. When demand for mergers and capital reignites as the economy goes up, it makes sense for firms to overpay to get the best bankers. This creates a situation with something called positional externalities, where firms have to keep one-upping each other to get the best people.

Don't forget, Wall Street got hit hard in the 80s, also (not quite this hard, but still hard). 5 to 10 years later it was riproaring once more.